Class Action Not Best Bet For GPB Investors to Recover Their Losses

On August 2, 2019, a class action complaint was filed against GPB Capital Holdings and several affiliated entities in the United States District Court for the Southern District of New York, Case No. 19-cv-7250. There are two named plaintiffs, one an investor in the GPB Automotive Fund, there other an investor in the GPB Holdings Fund II. The class action is actually quite limited in scope, broadly alleging that the investors have been damaged by GPB Capital because the funds have collectively failed to provide audited financial statements as required by the private offering memoranda and the Securities and Exchange Commission. The class action complaint has two counts: breach of contract and breach of fiduciary duty. There are no allegations of fraud or other misconduct and the complaint parrots many of the published claims about GPB, including many of the same facts identified on this blog before.

Investors should not be lulled into complacency by the filing of this class action complaint, as if it will be from where their investment losses are recovered. Investors need to continue to honestly assess their individual situations and determine whether their financial advisors or brokers sold them these funds based on misrepresentations or omissions of material fact.  Many of the GPB investors represented by Stoltmann Law Offices have made allegations of unsuitability and breach of fiduciary duty against the brokerage firm responsible for selling GPB Funds to them. Those FINRA arbitration claims also include other alternative investments too, because brokers who sell private placements tend to sell more than just one. Many of our investors have serious concentration issues, with substantial percentages of their assets under management – some near 100% – in alternative, private placements including the GPB Funds.

GPB Capital utilized a network of independent brokerage firms, including Madison Avenue Securities, FSC Securities, Royal Alliance, amongst about 60 others, to sell almost $2 billion worth of their securities to retail investors. Now investors are locked into investments that have been marked down up to 70% in some instances, with no dividends being paid, and with a constant drip of negative news. Brokers are telling their clients not to worry; to sit tight; to wait it out. Advisors are telling investors this will “blow over” and that GPB will be paying dividends again in no time. These “lulling” statements should not be relied on by investors. Brokers and advisors have no more information about what is happening inside GPB Capital than the investors do at this point, and any statement or advice from a broker to “hold tight” is self-serving. Investors should ask their brokers 1) how much money in commissions they were paid to sell them GPB Funds; and 2) ask to see the due diligence file the broker created on GPB prior to selling it. The responses will not be friendly.

Just because GPB Capital is illiquid and investors are stuck in it, does not mean investors cannot pursue claims against the brokerage firms that sold them GPB. Under every state securities act, the primary remedy is rescission. This means lawmakers contemplated that investors would still own a security upon which they brought suit and the remedy is for the seller to essentially buy it back from the investor. For example, under the Illinois Securities Law, the primary remedy is rescission. The statute states that those who violate the act are liable to the purchaser as follows:

“for the full amount paid, together with interest from the date of payment for the securities sold at the rate of interest or dividend stipulated in the securities sold (or if no rate is stipulated, then at the rate of 10% per annum) less any income or other amounts received by the purchaser on the securities…”

See 815 ILCS 5/13(A)(1).  The statute also provides for payment of reasonable attorney’s fees, expenses, and costs. 815 ILCS 5/13(A).

Most states have similar damages provisions in their securities acts. GPB investors, therefore, have legal claims against the brokerage firms responsible for selling GPB Capital Funds to them regardless of whether they still own the funds, or have realized any losses. These state securities laws are designed just for that situation. If you were sold GPB Funds by your financial advisor, please call Stoltmann Law Offices at 312-332-4200 for a free, no-obligation consultation with an experienced securities attorney. We are a contingency fee law firm, which means we do not get paid until you do!